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NATO dues and don’ts: Can Canada get off Trump’s naughty list?
Members of the Western bloc are on edge after Donald Trump said last weekend that he’d encourage Russia to “do whatever the hell they want” to allied states that don’t pay their dues. Canada pays well below the 2%-of-GDP NATO guideline and would be high on Trump’s “delinquent” list, but that doesn’t mean Ottawa is ready to pay up.
Trump’s comments drew the ire of … just about everyone. President Joe Biden, the chairman of the Joint Chiefs, NATO chief Jens Stoltenberg, German Chancellor Olaf Scholz, and even fellow Republicans blasted Trump for his comments. The most common refrain was that the former US president was undermining the collective security alliance and emboldening Russia.
But Canadian leaders, who are preparing for a possible Trump 2.0, were more cautious with their response. Foreign Affairs Minister Mélanie Joly admitted Canada must “do more” and steered clear of criticizing Trump. Defense Minister Bill Blairalso declined to take a run at the former president.
As Europe spends more on defense, the US has complained for years about Canada’s military spending, which is heading for 1.43% of GDP in 2025 – the highest it’s been in over 12 years. Ottawa’s defense spending is unlikely to rise further anytime soon as the governing Liberals keep an eye on the deficit and debt-to-GDP ratio while struggling to manage the budget ahead of a planned 2025 election.Don't expect Canada to do much more for NATO
As NATO member countries wrangled in Vilnius this week over when and how — or if at all — to invite Ukraine into the fold, Canadian PM Justin Trudeau was thought to be lining up with Eastern European countries. Those are the ones who want the alliance to open the door to Kyiv, while the US and Germany are more cautious.
But whatever Trudeau had to say, Canada’s position did not get much attention. And why should it? NATO’s largest member by territory barely spends more money on its military as a percentage of GDP than tiny Luxembourg.
Like a dinner guest who arrives empty-handed when everyone else has come bearing wine, Trudeau is doubtless aware that others are silently judging him, and he is doing what he can to maintain appearances.
On the way to Vilnius, he stopped in neighboring Latvia to announce that Canada will increase its presence there, deploying 2,200 soldiers and 15 Leopard tanks by 2026 — a modest but meaningful contingent some 150 miles from the Russian border. The Canadian troops will no doubt be a comfort to the Latvians, but nobody should expect Ottawa to do anything else anytime soon, because the cupboard is all but bare.
Canada will struggle with its deployment. The mighty US military, in contrast, keeps 35,000 troops permanently stationed in Germany.
Other NATO members would be happier if the Canadians did more. “They’ll make welcoming statements,” says Christyn Cianfarani, president of the Canadian Association of Defence and Security Industries. “But it doesn’t move the needle in any substantive way, the way our allies would like us to step up.”
Cianfarani’s association — which represents Canadian arms manufacturers — can be expected to yearn for bigger military budgets. But its laments are increasingly being amplified by other voices in the Canadian public policy world.
“Based on past decisions to not invest, we're now at the point where the rubber is hitting the road,” says David Perry, president of the Canadian Global Affairs Institute. “The government doesn't actually have the assets to do the same types of things that we used to, even just five years ago.”
Canada’s support for Ukraine is at odds with a broader NATO target. Canada has a politically powerful Ukrainian diaspora, including deputy Prime Minister Chrystia Freeland, and Trudeau has done what he can to help Kyiv. Canada is ranked sixth — behind only the US, the EU, the UK, Germany and Japan — in terms of aid committed to President Volodymyr Zelensky.
But its overall defense spending is near the back of the NATO pack, ahead only of Slovenia, Turkey, Spain, Belgium, and, yes, Luxembourg.
Canada’s penny-pinching is particularly striking given NATO’s own defense-spending target of 2% of GDP, which all members have agreed to. Secretary-General Jens Stoltenberg has long been pressing the laggards to put up more cash, but Canada — at a measly 1.38% of GDP — is unlikely to reach the target any time soon.
What’s more, Trudeau has privately admitted to NATO officials that Canada will never get there, as we learned in April thanks to leaked documents.
Politicians and diplomats at NATO summits normally do not publicly criticize one another for underspending, at least now that Donald Trump is out of office. Yet behind the scenes, American officials are withering in their contempt for Canadian parsimony on the issue.
“Widespread defense shortfalls hinder Canadian capabilities,” the document says, “while straining partner relationships and alliance contributions.”
Many NATO partners are frustrated by Canada’s inability or unwillingness to contribute more. And it’s not just spending more on defense to meet the alliance’s target.
Ottawa has declined, for example, to lead a stabilization mission in Haiti. It had to skip a NATO air force mission in Romania this year for want of planes. The US, not Canada, shot down a Chinese spy balloon over Canada this year.
Without nuclear submarines, Canada is unable to have a military presence under the Arctic ice. And without money for subs, it was excluded from AUKUS, a new defense pact with Australia, the US, and the UK.
The problems go beyond a lack of spending: The Canadian Armed Forces have difficulties recruiting personnel and procuring equipment.
The Trudeau government has begun to respond to growing dismay at home and abroad. It has promised to spend CA$40 billion to modernize its NORAD aerospace defenses, and is buying 88 F-35 stealth fighter jets for CA$19 billion. But in both cases, Canada is belatedly spending money to maintain a capacity it has long had.
“I think we should expect to receive pretty minimal credit for replacing 40 to 45-year-old fighter planes,” says Perry.
The Conservative opposition has raised the alarm and called on Trudeau to do more, but history suggests that even if they replace the Liberals in the next election, they may make similar calculations, choosing butter over guns. (Remember that the Conservative government of Stephen Harper, who Trudeau defeated in 2015, talked a good game, but under budgetary pressure, did not spend much more, so Canada has had low levels of military spending for decades.)
“There's a lot more enthusiasm on the part of Canadian political parties when in opposition to increase defense spending significantly than those parties in government have demonstrated,” Perry explains.
This is a matter of both geography and history: Canada has three vast coastlines, while Russia and China are far.
“We share a 9,000-kilometer border with the biggest military power in history, and our closest ally,” says Gerald Butts, vice chairman of Eurasia Group and former principal secretary to Trudeau. “Some people think that's freeloading; others think it's common sense. The truth is probably a mix of both.”
As the world becomes more dangerous in the wake of Russia’s war in Ukraine and China’s military buildup, the arguments for increasing defense spending get stronger. But polling shows Canadians are divided on the issue. With inflation making it harder to balance the books, the government is under intense pressure to spend the little cash it can spare on things that everyone wants.
For the most part, that doesn’t include the military.
Canadian Foreign Minister Melanie Joly, MN Justin Trudeau, and Minister of Defense Anita Anand arrive at the NATO summit in Madrid, Spain.
What We’re Watching: Canada is defensive … about spending
The fallout continued this week from the leak of a Pentagon assessment of Canada’s NATO contributions, which has embarrassed the Trudeau government. The documents say that Trudeau has told NATO officials that Canada does not plan to meet the 2%-of-GDP funding target that NATO members are supposed to reach and that the cash-strapped Canadian military has disappointed its allies by not being able to contribute to the alliance.
The leak came on the heels of an open letter from Canadian officials and politicians who are worried that Canada is not doing enough on national defense. Joe Biden’s ambassador to Canada, David Cohen, tried to calm the waters, but grumbling continues.
As the war in Ukraine drags on, there are concerns that the allies may grow less patient with Canada’s unwillingness to ante up. There is also a fresh outcry that the government is not doing enough to protect the Arctic. An op-ed by former top civil servant Kevin Lynch and two co-authors noted on Wednesday that the “gap between government promises and the execution and delivery of these commitments is becoming a chasm.”
Canadian Defense Minister Anita Anand recently sat down with GZERO’s Ian Bremmer to discuss the war in Ukraine and the power of NATO. Anand says Canada has seen an unprecedented increase in defense spending, and she notes that her country has NATO’s sixth-largest defense budget. She also points out that NATO’s monthly meetings entail the examination of each country’s capability, and that “we seek to complement each other.”
So will Canadian grumbling for more defense spending lead to a policy shift? We have our doubts, since Canada has already stepped up spending on jets, NORAD, and Ukraine, and there are traditionally few votes to be had in military spending in Canada.
Also, as Paul T. Mitchell, of the Canadian Forces College, points out, there is a long tradition of Canada being content to hide in Uncle Sam’s shadow and spend money on butter, not guns. He notes how a Canadian politician, back in 1875, observed: “situated as we are, not likely to be involved in war, and having a large demand upon our resources for public improvements, it was highly desirable to have our military affairs conducted as cheaply as possible.”
Plus ça change …
PM Justin Trudeau visits Canadian troops in Latvia.
What We’re Watching: Trudeau’s 2% trouble, media giants and their final tweets, friendshoring promise vs. reality
Trudeau’s defense spending
Canadian PM Justin Trudeau has privately told NATO officials that Canada will never meet the alliance’s target of 2% of GDP on military spending, the Washington Post reported Wednesday. The revelation is based on a US intelligence document leaked on the Discord gaming app, allegedly by a 21-year-old intelligence staffer.
The document says NATO allies — particularly Germany and Turkey — are irritated by Canada’s reluctance to increase defense spending and its inability to fulfill commitments to the alliance. “Widespread defense shortfalls hinder Canadian capabilities,” the document said, “while straining partner relationships and alliance contributions.”
Earlier this week, dozens of former top Canadian security officials, military commanders, and politicians released an open letter calling on Trudeau’s government to take national security and defense more seriously. Canada’s defense department pushed back, saying that it just agreed to spend $19 billion on 88 F-35 fighter jets and that it’s investing in modernizing NORAD capabilities and increasing its footprint in the Canadian-led NATO battle group in Latvia.
The Liberals argue that they have increased defense spending, and the Parliamentary Budget Watchdog, an independent office, confirms that nominal Canadian defense spending grew by 67% between 2014 and 2021, and Canadian outlays as a share of GDP rose by roughly 40% – from 1.0% of GDP in 2014 to 1.4% of GDP in 2021.
That’s still well shy of the 2% goal, but even annoyed allies are behind. While Germany promises to reach the 2% goal, they too are currently at about 1.4% of GDP, and the war is on their doorstep. The US, for its part, leads NATO’s defense spending at 3.47% of GDP. With war raging in Ukraine and tensions rising with China, NATO chief Jens Stoltenberg has said the 2% target should be the floor, not the ceiling.
But domestic politics always drives the appetite for doing more. Increasing Canada’s defense spending has never been a political winner or a political necessity for any party, right or left, as the unstated assumption has always been that “the US will carry the weight.” Fighting wars may be part of the future, but fighting against inflation and for health care dollars are also security issues for politicians — job security that is.
CBC, NPR & PBS fly the coop
Elon Musk ruffled some feathers with new Twitter labels for public broadcasters on both sides of the border this month – and there are implications for the future of his platform and the media outlets.
It started when Musk decided that NPR’s Twitter account should be labeled “State-affiliated media,” as if it was an official mouthpiece for the U.S. government, like China’s Xinhua News Agency. Musk relented and changed NPR’s label to “Government-funded media,” but NPR stopped tweeting in protest. PBS followed NPR’s lead.
Meanwhile, in Canada, Conservative Leader Pierre Poilievre, who wants to end Ottawa’s massive subsidy to the Canadian Broadcasting Corporation, asked Musk to slap a new label on CBC’s Twitter account and celebrated when he did. CBC, like NPR and PBS, has hit the pause button on its Twitter account. Musk responded by changing the label to “69% Government-funded media,” a juvenile joke.
The Twitter chief seems happy to drive content producers away from his platform, so expect more of the same. Even Swedish public radio has taken its leave – not because of a label, but because its audience left Twitter first.
Friendshoring or friend-ignoring
Canadian Finance Minister Chrystia Freeland delivered a speech in Washington last week calling for “friendshoring,” or trade policy that centers on economic cooperation between like-minded countries, particularly Canada and the US.
In her budget this month, meanwhile, Freeland unveiled targeted stimulus programs that aim to keep Canadian clean tech firms from heading south to take advantage of the massive tax credits available in Joe Biden’s Inflation Reduction Act. Nobody knows yet if the Canadian budgetary measures will do what is necessary to stop capital flight, and Canadians are nervous.
Freeland gave her speech as the World Bank and IMF held their spring meetings, but an important part of her message seemed to be targeted at U.S. leaders: “No single country – not even the United States – can invent all of the new technologies, or possess all of the natural resources, that the net-zero global economy requires,” she said.
US Treasury Secretary Janet Yellen spoke last year about friendshoring and the need for “trusted trade partners” to work together to bolster supply chains. But Washington’s industrial policies and subsidies make it hard to know whether Yellen or Freeland’s message will convince American decision-makers to include Canada in its plans for a clean tech future.
“How this plays out,” writes The Globe’s David Parkinson, “will say a lot about whether friendshoring is a realistic path for global trade. Or, alternatively, expose it as a well-meaning step on a slippery slope to a more protectionist future.”
A Canadian soldier holds a flag as they wait for the arrival of PM Justin Trudeau along with NATO Secretary-General Jens Stoltenberg in Adazi, Latvia.
What We’re Watching: NATO (still) wants Canada to pay up, critical mineral gold rush, a tale of two banks
Canada is a NATO laggard – but it’s far from alone
The aging defense league is finding a new raison d’etre battling Russian aggression in Ukraine. But Canada still falls short of the 2% GDP military spending goal that NATO Secretary General Jens Stoltenberg recently said is set “not as a ceiling but a floor, a minimum, that we should all meet.”
A recent NATO report estimates that Canada’s share of defense spending declined against its GDP to 1.27% in 2022, down from 1.32% in 2021 and well shy of the 2% target. Several members spend less than the target, but Canada falls toward the mid-to-bottom of that list.
In 2022, the US topped the list at 3.47% of GDP. The US routinely nudges Canada to spend more on defense. Last month, its ambassador to Canada said he was “hopeful” the country would hit the NATO target.
Canada has no plan to reach the 2% target, and its latest budget is still light on defense spending. But the government does tout that it has the sixth-largest NATO defense budget and is a top contributor to the alliance’s common fund. Canada also spent billions on new fighter jets and is making investments in northern and continental defense. NATO doesn’t penalize states that don’t hit the 2% target – and it’s hard to imagine Canada getting thrown out of the club, so all it can do is name and shame in the hope that Canada starts to pull its weight.
Betting on critical minerals
If you don’t know the term “critical minerals,” it’s time to learn. You’re going to hear it a lot in the years ahead. These are minerals of strategic value to a country’s economic health and security. Both Canada and the US use that definition, but the Canucks add a flourish, referring to them as “the building blocks for the future of our green and digital economy.”
They include copper, graphite, cobalt, lithium, and several others necessary for building and operating a contemporary economy. They power everything, from transportation and energy to digital infrastructure and the so-called “green economy.”
Canada is full of critical minerals. Several provinces and territories are mined for cobalt and copper. Saskatchewan is home to uranium and potash, there’s graphite in Ontario and Quebec, and fluorspar in Newfoundland and Labrador. Experts say the capital-intensive mining industry needs and expects (!) subsidies to extract them. The government’s critical mineral strategy will offer some. PM Trudeau’s March budget included an investment tax credit for critical mineral exploration and investor subsidies.
In the US, meanwhile, the Inflation Reduction Act includes critical mineral measures, such as billions in federal loan money, as well as its own tax credits.
The need for critical minerals is booming on both sides of the border – as is trade. In 2020, mineral trade between the US and Canada hit nearly $96 billion, and by 2030, global mineral trade is estimated to hit $567 billion.
Will Canada and the US hit a recession?
Both the Bank of Canada and the Fed are prepped, but the Northern neighbor is more optimistic than the Southern one. On Wednesday, the Bank of Canada held its interest rate at 4.5%, a move it had signaled for some time. The bank says a soft landing has become more likely as it expects Canada to avoid a recession over the next three years while inflation slows and moves toward the 2% target — though it is still a long way off. The upshot? The economy may be edging back toward a pre-pandemic “normal.” But, warns Bank Governor Tiff Macklem, the current restrictive monetary policy may need to stay in place a while longer. Still, by the gloomy climate standards, that’s pretty darn optimistic.
The US Federal Reserve, meanwhile, is grouchy. It hiked its rate from 4.75% to 5% in March, its ninth consecutive increase. On Wednesday, the US Bureau of Labor Statistics released a report showing that inflation fell to 5%, with core inflation at 5.6%. That’s good news, but it’s unlikely to change the Fed’s course, and another rate hike is expected in May.
So, watch your banks and your dollars for signs of recession. And even if Canada is optimistic, the US pessimism will likely put downward pressure on the Canadian dollar, particularly if Canadian rates remain steady. A weaker Canadian dollar means more expensive imports from the US. But the loonie notably held its own on Wednesday.
What does it all mean in the big picture? Cooling inflation rates in the US, Canada, and Europe offer hope that the rate-hike cycle could soon end. But the UK saw an unexpected inflation jump in mid-March, a reminder to temper — or deflate – expectations.